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AbbVie, Shire enter detailed talks on combination

Tom Murphy AP Business Writer

Posted:
07/14/2014 05:14:50 AM MDT

Drugmakers AbbVie and Shire have entered detailed talks about a possible combination after AbbVie raised its bid once again and offered to give Shire shareholders a bigger stake in the resulting company.

Shire said Monday that North Chicago, Illinois-based AbbVie is now offering a cash-stock combination valued at 53.20 British pounds ($91.10) for each share of Shire, which is headquartered on the British island of Jersey.

The new offer totals roughly $53.68 billion and represents an increase from AbbVie's previous proposal, which amounted to more than $51 billion. Shire PLC shareholders also would own about 25 percent of the combined new company, up from the 24 percent stake proposed in the most recent offer.

Shire had rejected several unsolicited bids from AbbVie Inc. before it asked for another revised proposal earlier this month. Shire said its board would be willing to recommend the latest bid to its shareholders if the companies resolved some other terms in the offer, which it did not detail.

The drugmaker said its board has entered "detailed discussions" with AbbVie over those terms.

Shire makes the attention deficit hyperactivity disorder medication Vyvanse as well as rare disease and gastrointestinal treatments. AbbVie was spun off from Abbott Laboratories at the start of last year. Its products include branded prescription drugs like the blockbuster anti-inflammatory drug Humira.

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AbbVie executives have said the product portfolios of the two companies complement each other. The U.S. company also is interested in the tax break it could achieve through the deal.

AbbVie has said it expects the combined company to pay a tax rate of about 13 percent by 2016 after AbbVie reincorporates on Jersey. That would be down from its current rate of roughly 22 percent.

Several other U.S. companies are using or trying to use these overseas combinations called inversions to lower their tax rates. These moves are raising concerns among U.S. lawmakers since they can cost the federal government billions in tax revenue.

At 35 percent, the United States has the highest corporate income tax rate in the industrialized world. The European Union, by contrast, averages about 21 percent.

In addition to the higher tax rate, the United States also taxes income companies earn overseas once they bring it back home. The percentage taxed is the difference between the tax rate in the company where it was earned and the U.S. rate.

"We tax income where ever it is earned around the world once you bring it back home, and almost nobody else does that," said Donald Goldman, a professor at Arizona State's W.P. Carey School of Business.

Inversions can happen if a U.S. company merges with a foreign company and shareholders of the foreign entity own at least 20 percent of the newly merged business. The foreign company would either acquire the U.S. one or the two would create a new firm overseas, but the U.S. company can keep its corporate offices, and executives wouldn't have to move overseas.

AbbVie's stock fell 2.4 percent, or $1.31 to $53.65 in pre-market trading Monday after Shire announced the deal update. U.S.-traded shares of Shire rose by $4.30 to $253.36.